An NCLT scheme is a price-sensitive event. The negotiations, the board approval, the valuation, and the regulatory filings generate unpublished price sensitive information (“UPSI”). The listed entity and the persons who have access to the UPSI are subject to the SEBI (Prohibition of Insider Trading) Regulations, 2015 (“PIT Regulations”), and a breach can attract penalty, disgorgement, and prosecution.
The UPSI
The information relating to the scheme—the identity of the parties, the share exchange ratio, the appointed date, and the financial implications—is UPSI. The information becomes UPSI when it is not generally available and is likely to materially affect the price of the securities. The listed entity must keep the information confidential and must handle it on a need-to-know basis.
The Trading Window
The listed entity must close its trading window for the designated persons when the UPSI is generated. The trading window closure should be announced, and the designated persons should be prohibited from trading until the information is made public. The Supreme Court has held that insider trading is presumed where the person is in possession of UPSI and has traded, and the motive is irrelevant.
The Code of Conduct
The listed entity must maintain a code of conduct under the PIT Regulations, and it must include the procedures for the handling of UPSI, the trading restrictions, and the reporting of the violations. The code should be reviewed and updated for the scheme.
A technically sound scheme includes a UPSI protocol that identifies the information, the persons who have access, the trading window closure, and the disclosure timeline.
Call to Action
Anuj Desai & Associates advises listed entities and insiders on the PIT Regulations aspects of an NCLT scheme—from the UPSI identification and the trading window closure to the code of conduct and the defence against an insider trading charge. If your scheme involves a listed entity, we can help you manage the UPSI.
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